Chair: I think the room is filled up enough. On that note, I would like to say again a very warm thank you to the headline sponsor, Skype. Again, it allows us to be together in a nice venue, with great production, instead of a sort of low-ceiling hotel, sort of lobby place with nailed down carpets, which really doesn't do it for me. I would like to welcome Sten: Tamkivi, all the way from Estonia, who is Skype's chief evangelist. A very warm welcome for the keynote of the headline sponsor.
Sten: Good afternoon. It's a pleasure to be here, and thanks Lee for pulling together eComm and I'm especially happy that this happens, not only in the U.S. where most of the things in this industry happens, but also in Europe. As you might know, Skype also comes from Europe and is one of the few success stories coming from here.
First of all, there is the usual thing that I do that I doubt if I should do here, but how many of you actually use Skype? Thank you. I love you too. I really wanted to see 100%, for the first time in my life. I usually get about 80%. Thanks for that.
What I wanted to talk to you about today is some of the basis of this talk is actually public knowledge. Skype has been around since 2003, only, so we're a six year-old company. Some might call us a startup still, but during that period, we have significantly gained market share of international calling minutes, all over the world. In 2005, maybe there was less than 3% than all calling minutes, internationally, going through Skype. Last year we crossed 8% and it's growing.
I want to give you some background around why this is happening and on which fronts it is happening, and what are some of the very specific issues that we see when we're addressing a truly global user base. Those minutes are generated by about 520 million users that live in 225 countries, all over the world. That's pretty much every single country and territory in the world, except for one, and you can guess which one doesn't have Internet.
Why are we growing? If you think of that, there have been VoIP applications before. There have been IM applications before. There have been hybrids of those before. There have been ones that are based on open standards. There have been other attempts based on proprietary approaches. Why Skype?
The rest of my half an hour we will split into two buckets. I will try to bring those buckets together again later. First, there is this notion of rich, intimate conversations you can have when you don't have the limits or barriers of cost. Earlier, I was looking at Twitter. One of the earlier presenters here was speculating on how much revenue Skype drives away from telecoms if we serve about 100 billion minutes a year. My answer to that is it's not about pulling those away from telecoms because most of those minutes probably would never have happened if we had to pay for them at the high rates. A very typical example is a video call, which is always longer than a voice call, because of the rich and immersive experience you have.
A good example of that is if you have ever tried to have a sensible voice conversation with a four-year old, over the phone. That usually lasts for three minutes, four minutes, and that is the attention span. You put the same kid on a video call with the grandparents, and all of a sudden you get an hour of playing together and drawing together, and all of these other things. Calls become longer and calls become more intimate.
At the same time, the growth of Skype, or the reason we can develop the product is that we make money from interconnecting to the PSTN network. All of our investments, after the first rounds of venture capital, there have been no cash injections into the company. We've been profitable for about 11 quarters now. We keep reinvesting the money we make from the PSTN to make that first rich bucket much better.
Let's talk about the video bit first. When we ask you users how they see Skype and the contact list of people they have on Skype, it's really interesting; the average contact list on Skype is a single digit number. The average Facebook contact list, for example, and they do an excellent job of recommending people you might know, and all of these other drivers that drive people on the contact list, it's tens if not hundreds of times bigger. Our users tell us that it's quite a harsh decision if I want to add this person to Skype because this means that I really want to talk to that person. The value of the members of that contact list is much higher, or they are much more intimate parties in a conversation that's about to happen.
Recently we've seen, and this is still a heavily growing number, which actually is a bit scary, about 1/3 of all call minutes - again, we're serving 100 billion of those a year, 1/3 of them carry a video signal. At peak times, when there is something special happening, like Christmas or New Year or Mother's Day in some part of the world, this goes well above 50%. It's huge. Video is out of the geek sector. Video reminds me of the early days of Skype. In the office, a few of the developers were placing bets on how many users Skype would have after launch. One of the core developers said this is never going to fly because people don't have headsets. Fortunately, he was wrong. Skype was valuable enough that people got headsets.
We've gone through the same transition from approximately 2005, where again we launched video and people didn't have decent cameras. They had trouble setting it up. Different cameras have different drivers under different operating systems and all these other hassles. Now, the video calling part, because of the huge value it provides to people, people have gotten over that. It has helped that Notebooks come with built-in video cameras and all of these other enabling factors. This is for the masses. It's not a technological subset of users or something like that, anymore.
Moving onto the PSTN bit, or the International Long Distance, or ILD as some people call it and what's happening in that space. ILD, over the last five or six years has been pretty stably growing at about 4% a year. It looks like a decent number. Anybody who is trading stock, it looks on the lowish side, especially if you look at the prices of telecommunication endpoints, like phones going down and minute prices going down. If you look behind those numbers, that's actually what has happened. The growth is low because the volume is growing at a decent rate of 13% on average. What happens behind that is that both the retail and wholesale prices at which you can buy minutes when you have tens of millions of them to connect, then that sort of evens out the decent 13% growth in volume, and the size of the industry grows much slower.
There is a definite shift of those minutes going mobile, and going mobile in both directions - between mobile phones and also from mobile to land line and from land line to mobile. I'm sure that everybody knows that so I won't speak about that much longer, but there is something much more interesting which Lee kindly started introducing. These minutes are spread across many, many more calling corridors or country pairs than they used to. Just as a comparison point, there is one of the leading research providers on the market still maps out and monitors about two thousand top corridors. That is the old school telecom view of the world, that these are the corridors that matter.
When we look at the actual Skype usage, there are about 40 thousand calling corridors that are worth paying attention to. Just to give you an example of what a calling corridor could be, in the U.S. to Mexico is the most active international corridor there is in the world, and they serve about 500 million hours of calls a year. That gives us the number one ranking. That's quite a decent amount of calling minutes.
If you look at the top 30 calling corridors, again out of the 40 thousand or the 2 thousand that are currently researched in the world; those top 30 U.S. to Mexico and 29 others only sum up to the 37% of all calls happening. There is a 63% long tail that nobody has ever been able to address because the telecom industry had always been very focused on the local market, or some of them are regional and some may cover a continent quite well and focus the business and offerings there. Before companies like Skype, where we are not a telecom but we are a software provider that utilizes, as Michael put it so nicely this morning, the pipes that telecoms provide, with our software solutions and very flexible software solutions we are able to address this whole global space with pretty much the same offerings. It doesn't matter which country in the world you live in; you can still get access to Skype-to-Skype calling and SkypeOut calling to PSTN connections.
Another obvious statement, but let me go a bit behind that. When we survey our users, taking the intimate, rich, full conversation together and the basic needs of just talking to someone at an affordable rate, in the U.S. about half of our user base tell us that they are using Skype for making video calls. If you ask the same question in the users from China, and there are many other markets that I would say are far more emerging than China is as far as Internet penetration and the availability of decent computers and all of that. In China, you can cut that number into half. On the flip side, if you talk to those people, that has historically been a weird situation because Skype brand is so much connected to real time, live conversations, many people don't know we have a really cool, persistent chat system or the IM system. In the U.S., 5% of the users say they use Skype for IM, whereas in China you would see that number being 1/4 of the users. That starts to build up to a point where there are extremely high geographic differences in what people see as communication and what are the modes of communication those people are willing to go for, balancing their equipment, wishes, and needs for richness and so forth.
Taking that, you can make a much more interesting view on the long distance calling space than the previous mobile chart was. It's too obvious that people are using mobiles and don't want to use land lines. If you're running a global communication network, or a cloud of conversations, then one way you can look it is how are these conversations happening between the developed and emerging markets? On the bottom, on the X axis you can see the originators and then the destinations. You can split those in pairs.
What I did was to take the top 30 corridors, again for the sake of sensible data processing, not the whole 40 thousand, but split that out and it starts to build out something very interesting. Developed-to-emerging is the most important way of communication, or initiating communications among the highest volume corridors in the world. Of course, U.S. to Mexico is a great example of why that is. It's usually people moving from emerging markets to find a life in a more developed market, and then starting conversations back home.
Secondly, from developed-to-developed, again it's quite obvious. If you have a bunch of what we call developed countries, by GDP means or whatnot, in Europe, each of them call the U.S. enough times, and the U.S. calls a bunch of them back, then you get to 10 out of 30 top corridors. That's understandable.
Compare those developed market originated corridors to the ones originating from the emerging ones, and it's a really sad picture. It ties in with what I showed you with the IM interested users in Asia, for example, there are probably a number of good reasons why they don't find - for long distance conversations, what is blocking them of using real time, rich, audio-based, video-based calls to satisfy that need. If you try to generalize this, this is a very weird attempt on a graph; if you have the emerging markets on one side and the developed ones on the other, on the emerging market side, the poorer the country the less Internet penetrated the country. The less telecom penetrated the country. If you look at Africa, there are tons of people who will never have access to a cable in their life, and maybe if they're rich enough they will get access to a mobile phone, which has coverage in their village.
If you think back to the good old Maslow pyramid of human needs, if you have those needs of clean water, and children's health and education and these needs unsatisfied, your price sensitivity is extremely high or the alternative cost of putting money behind communications or making communications happen. You have many more things to worry about and there needs to be something special about communication to even compete with the daily problems you're actually facing.
Whereas, in the emerging markets, the capacity or the capabilities of even handling any real time communications is almost zero. For the sake of simplicity, take the GDP as the basis of how to compare these countries. As a side remark, why I'm stressing it's for the sake of simplicity, there are some other real trends which are probably worth a session on their own, whereas in a very developed market, very developed user segments, when you go into testing new solutions much more eagerly, the actual reliability of communications can go down. Let's say there is an ex-Soviet country with a phone system installed in the '50s but basically works. On a day-to-day basis you might have a better connection to the outside world than the guys who are trying the latest version of LTE on a device that's not out of beta. That's a different story, so let's stick to GDP.
As you move more towards the developed markets, then you will see that people don't worry; the price sensitivity goes down enormously. If you live in the U.S. or in Europe, you will probably have a bunch of competing telcos who are offering you a TV Internet connection in a triple or quadruple package which has also zero cost calls to 30 or 50 countries in the world, so the last thing you worry about is how you are able to afford that, or you're not going to switch to some Internet application because of the price. The price sensitivity goes down and that's not the selling argument for those people at all, to come to emerging communication tools.
Whereas, because they have their needs on the lower end of the Maslow pyramid solved, they don't worry about food, water, and education; they have time to worry about other things like seeing their grandchildren that live on the other side of the country or on another continent, seeing their children who went to college on the other coast of the U.S. and so forth. Both the capabilities but also the drive or need for richness, intimacy, and they have the time to spare to keep in touch with their loved ones, and all of the soft things start come into play much more.
What happens here is that over time, theoretically taking the assumption that humankind will develop slowly but steadily towards some common level of development, which I don't know if you believe it or not, you can draw the line or move the line from right to left a bit, so there are more countries in the developed segment or less in the emerging but it's highly unlikely that it will ever hit 100% that everybody is zero price sensitive and 100% richness oriented, but that's how the market develops. It's not flipping from one end to the other or one end is not coming to replace the other.
With a company or an emerging communications provider, whether it be software or hardware, some new business model based on the existing software and hardware, or something else; as long as you pick one of those ends, what I'm saying is that in the foreseeable future, there will not be a high quality video conversations provider with a global footprint. There will not. People who will play in that segment will always be limited to the developed or well established communication markets or telecom markets which they can build upon.
On the other hand, establishing a next venture, and MVNO that's trying to do a price arbitrage, a new calling card system, or anything like that which is only focused on price with the same low or narrow-band audio quality, with a - what is the number - before, a call setup time with 8 seconds on both ends and all of these other things, the non-quality things will never be able to have a global footprint because people in the developed markets just won't care and it will help the number of people in the more emerging markets or expats from emerging markets in the old markets. It's still going to be a niche.
In order to truly cover the global communications needs of humanity, you have to do both. Basically coming back to the title of this presentation, there is the love and peace component and there is the good old analogy PSTN component that you need to serve in order to truly enable the world's communications as we wish, as we are doing at Skype. With that, I am running ahead of time so there is plenty of time for questions, if you have any.
Audience: What happens if you succeed and get 100% penetration? What do you make money on?
Sten: First and foremost, it's fortunately some while ahead. Skype has 520 million registered users and a subset of those are truly active users. There are about 1.2 billion PCs connected to the Internet. There is about 2 billion mobile phones that are equipped enough to run the a third-party voice application basically. All in all, there are 6 billion people in the world. Even though half a billion users look really big and we're happy to have achieved that in the first 6 years, at the same time it's still the very beginning of the curve. In turn, that means that we have a lot of time still to figure out sensible monetization models, if and what we need to do with the non-PSTN users, experiment with those, and we're in no rush to roll something out on a global basis and make Skype paid or anything like that.
Audience: Would you see an advantage or a disadvantage for Skype to switch from its proprietary protocol to an open standard like SIP?
Sten: We've been quite successful with a proprietary one, so any switch like that would need a very good reason. It's one of those where you don't fix what's not broken. I think what is more immediate for us is the question of how to interop with others, and something we launched this year into beta was Skype for SIP. The other related project is Skype for Asterisk; where it's about how do you connect to other end points who are not Skype nodes; which of the standards of protocols are the ones you pick to communicate with those. As you can see, we're doing SIP and Asterisk in parallel because that gives us new learnings of what works, what doesn't, where do open standards fall short.
If you think back into late 2003 where those decisions around Skype's architecture was made, then I don't think we would be where we are if we had gone with open standards at that point. Some of those reasons have been mentioned today, as well. If you ask the users why they picked up Skype in the early days, they usually say Skype solved the problem of setting up the client. Me personally, the first time I tried to use a VoIP client in 1995, or 1996, and being a fairly technical person, I couldn't get through the proxies and ports and all this other mess I had to set up. Once I got the client running there was nobody to talk to. Those two problems, Skype solved, and a lot of that solved is our proprietary invention of how to solve it. That's explaining where the roots are. Today, we are looking more to how we open up to these open standards rather than replace what we have with something else.
Audience: To follow up on Adrian's question, there have been a lot of rants on the Web about the interoperability behind your P2P technology and the fact that Skype might be bought out by ventures and peer-to-peer technology would then be part of the [00:25:09.29 ?] software.
Chair: What was the question? I didn't understand it.
Audience: The question was would you go on open standards because of IP problems?
Sten: Of course, I can't comment on ongoing litigation, but right now we're just running our business as normal.
Chair: Let's not have blog-type questions. People can go on for a week commenting on blogs online in these topics anytime. Are there any other questions for Skype?
Audience: We've just heard you refer to your various corridors, calling corridors between emerging and developed countries. I couldn't help noticing a lot of them seem to parallel some of the biggest remittance routes in the money transfer business, and some of the ones that have outrageously high transaction fees attached to them. Have you ever considered implementing a credit transfer or mobile money transfer like an extension for Skype? It seems intuitively almost obvious that given this has become such a big part of the business, that you'd be interested in that.
Sten: We've done experiments in that space, and most notably Skype has been since 2005, part of eBay and another company that is part of eBay is PayPal. We experimented with some product integrations with PayPal, like bringing PayPal send money to Skype between users and all of that. I think the main hassle, which again has been mentioned here today, is the individual regulations of individual countries are not ready for a pan-Internet fluid payment system. In the worst case scenario, and that's the business where PayPal is, that PayPal is becoming a bank in more, and more countries as far as legal status. We believe our mission is to enable the world's conversations, so we have not decided to take that step and start becoming a bank. We have enough hassle with many countries trying to regulate us as a telecom even though we're not. That's probably mainly a question of focus.
Chair: If you have questions, it's quicker if you stand up, so you're seen.
Audience: Just a question about are you planning to develop the social network capabilities of your platform? Are you planning to develop Skype into more of a social network platform itself?
Sten: What do you mean by social network, first?
Audience: I guess I kind of view Skype as a social application in that it allows you to connect with others and have presence, and that is an overlap with some other capabilities within social networks like Facebook and others. To what extent are you growing that capability set within your platform? Are you thinking about Skype as a social network itself?
Sten: Definitely, I think Skype is a social network because there are people, real people, there are social connections, and there are graphs you can analyze. I think what you're more referring to is exposing that all more in the clients and all of that. Yes, there are some things we have done and probably will do in the future. One thing that comes to mind is a few years ago is we did an integration with MySpace when MySpace was the number one social network. You didn't have to build your own profile on Skype but you could link to your MySpace profile and pick the new image from there and so forth. For the shared user base it had some value, but it was not something that was a game changer.
We are taking that carefully though, because of the intimacy slide that I showed. The nature of the usage pattern of people currently relying on Skype for their conversations is heavily, or the perceptional value they see is heavily different than the web-based social networking sites. If you mix them up too aggressively, like as a Skype employee and a heavy Skype user, I have 1,000 plus Skype contacts. That's a geekish thing to have currently. The clients are much more optimized for the segments of users who have a smaller number but more intimate relationships on Skype and they use those other sites for the whole thing. I'm sure you will see more experiments with different partners and opening of different APIs on both sides, and what not, happening.
Chair: We have time for one or two more quick questions.
Audience: I'm from Slovenia and I have a user question regarding you have peer-to-peer technology but it's not a pure peer-to-peer technology because it has a client server part. What happens to me, for example, I have a Wi-Fi community at home. When the Internet connection is broken because of a break in the fiber connection somewhere, I couldn't communicate with my community. Are you working on that area also, to be the pure peer-to-peer application?
Sten: I'm sorry; I don't think I got the question.
Chair: The question was Skype is a hybrid, it's a peer-to-peer, and it's centralized in terms of having a login directory. Do you ever plan to go fully decentralized?
Sten: I think we're looking at use cases, case by case. There are some things - for example, we keep your contact list on the server. When you install a new computer, log in, you get your contact list back. Some things like media streams only use peer-to-peer so we find that hybrid to be very flexible.
Chair: It's hard to see the audience; it's a little dark. If there are no more questions, please thank our headline sponsor, Skype and Sten:, for coming all the way. Thank you. We appreciate it.
Sten: Thanks Lee.
]]>Martin: Thank you, Lee, for inviting me, and thank you all for coming here to this very special community of eComm. What I would like to do this morning is to present to you some ideas about the future of communications and future business models. These ideas are very much my own; they're not British Telecom's corporate position. I'm still working on that. If you could put up my presentation, then the thesis I have this morning is a very simple one, which is that the era of minute-based telephony is going; however, there is a huge opportunity to replace it with something new. I'm calling that something new "moments" rather than minutes. These moments will be when a global communications platform helps to make business processes and communications between enterprises and their customers more efficient and more effective.
Goodbye minutes. Back in the 1980's, BT was advertising telephony, front and center of its offering. The message was that there was huge social value in telephony. It was no longer a luxury product that was restricted to business use or essential needs; however, a mere seven years later, the advertising had changed. Production values had gone up. The adverts are much more expensive. There is more celebrity endorsement, but the truth was the product had become one promoted on price, and was essentially a dull commodity.
Roll forward another decade, and telephony disappeared. All of BT's adverts for the consumer space are based on broadband and media. It's the same story, very much in the business space. It isn't just fixed-line operators who have this dilemma. The mobile party is over too. Two charts here, they show you the revenue for the top four operators in the U.K. and it's a similar story for other developed markets. As you can see, the revenue for both voice and messaging is peaking and it's starting to decline.
It's not just price competition. Users are starting to migrate to other tools and services. For example, kids are starting to use BlackBerry Messenger because it avoids SMS charges. However, there is a natural lifecycle to any industry involving technology. Just as wireless communications came along, and cellular technology, and spawned the mobile phone; every kind of technology or products that emerges is put to uses that were never anticipated by its originators. Those new uses spawn new needs, which in turn spawn opportunities for new technologies and products and business models. That, in a sense, is the heart of the message that was put to you this morning; these new needs create a huge opportunity to replace the dying minute model.
What could those new needs actually involve? I'm going to pick as a case study a core telecom's product, which is voicemail. The example I want to share with you is a real voicemail that I personally received from the U.K. tax man. It was about two days after I filed my tax return. I'd done my tax return and it said I owe them some money. Presumably they're calling up to say, "Please pay us some money." I think it's typical of the millions of interactions that occur every day between enterprises and their customers, and very clearly highlights some of the problems involved. I'm going to break for the audio/visual gods and play the first half of the voicemail. I want you to listen very carefully, think hard about what you're really hearing in this voicemail. Think beyond the immediate words. [Audio] "First saved message, from September 29th, at 9:39 a.m." "Good morning, this is a message from [04:43:15] Customs, for Mr. M.R. Geddes. If you could return my call on telephone number ..."
Martin: Okay that's enough. It's boring enough. What did we really hear there? The first thing we heard was a container for the message, which announced the message. It gave us one piece of meta data which is the time of the message. It didn't in any way relate to the specific content of the message. It was completely dumb. The second thing we heard was the medium of the message, which was relatively poor quality audio. You could hear that transition from the better quality audio of the container to the very poor quality audio of the actual message itself. It's hard to understand. Then it was the message content, which was a sequence of business objects which have been encoded in a one-way manner into human voice. Finally, we heard the container again, and the container said, "Press hash to return the call," but was also dumb and in no way related to the actual content of the message. Let's call them back. [Audio] "This is a test message. The service on this number is currently inactive."
Martin: As a special bonus for today only, they'd even given me the wrong number. I think this example highlights very powerfully some of the inadequacies of voicemail as a channel for businesses to communicate with their customers. The first problem is it's ineffective. It relies on me as a customer, writing down all those details, the numbers called back on, the reference number, being in a context in which to do that when I receive the message, remembering to act on that and actually then going to act on it properly.
Also from the perspective of the enterprise, which in this case is a tax man, it's given me a poor customer experience. Before I've even arrived into their call center, I'm already not a happy customer because I've had to go to the poor user interface of the voicemail system.
The second problem is it's highly inefficient. They've had to pay somebody for that one-minute voicemail, to sit there for one minute and hand craft - it's like the hand weaving of the 21st Century - this message. Even if I call them back, they have to then pay someone to re-identify me, and re-authenticate me, which is a process that is both expensive and can go wrong.
Finally, it's an insecure process. You might note; there was no reason given to me in the message for why I should call them. That, presumably, is because the tax man can't know for certain that it's really me that's going to receive the message. In return, I can't really for sure know it's them. That's not a minor problem because even at BT we have a problem with people phoning up BT customers, pretending to be BT, and trying to defraud them in various ways. For the telco, it's made about 7 euro cents worth of termination fee for that one message, and that's a declining figure that's being regulated downwards.
It isn't just telecom's products that have this problem of being inefficient and ineffective at communicating between enterprises and customers. For a moment, forget about BT being a telco. BT is a business like any other business that needs to communicate with its customers. We've been experimenting with new channels to reach our customers, and in particular; we've been using social media to try to discover customers who are talking about BT products and services, or maybe having issues with those products, and to proactively reach out to them.
We have had a major trial and we've had over 17,000 interactions with our customers, through Twitter for example. It's proving to be a very effective channel to reach customers. Of our enterprise customers we've talked to, over 50% subsequently go on to spontaneously make a positive comment about BT in a public social media space, so it shows a very high rate of customer satisfaction with this channel. Whilst we've received tremendous support from social media players in running these experiments, we have found limitations in this channel as a customer support tool.
Firstly, around support and accountability is we're still using fundamentally a consumer product with consumer-termed conditions. If we started to have to support millions of our customers, those terms and conditions may not be appropriate for that use. Secondly, there are various systems limitations that affect our use of the product. 140 characters may be appropriate for consumer-to-consumer chatter, but if we want to send the customer, "Here are the instructions to fix your problem," it's a bit hard to do that in 140 characters. We may need richer interactions. Things like the ratio limits on followers to following may be inappropriate for servicing millions of customers.
Next is the security private data. Telcos are entrusted with some of your most personal data, who you talk to. We need to know, for example, that your account number could never become searchable in an index. The limitations of the system constrain the types of conversations that we can have with our customers.
Fourthly, is the timeliness of the data. We're able to poll for new mentions of BT and its products and services, and analyze that contextual data about every fifteen minutes. In that fifteen-minute window, the customer could easily have called into the call center and we could end up double handling the call, which not only increases cost, but then further creates customer dissatisfaction.
So, what's the real need? It's that communication service providers, whether they're telcos or online Web 2.0 type players need to return back to fundamentals. Fundamentally they're to make communications simple and easy; however in doing this, they have to confront two inescapable realities. The first one is that the public increasingly expects the actual services themselves to be free. They want the delivery of those services, the distribution of them, the voice minutes, the MB to also be free but they aren't quite getting it yet. There are products like Google Voice and they're bringing it. Even when they pay, and they are willing to pay sometimes for quality and convenience, they should increasingly feel like free, as part of a standard priced bundle with no extra charges.
The second inescapable truth for enterprises is that minutes waste time, and therefore money. There is a fundamental disconnect between the product that's being sold to enterprises and the revenue model around it, and what they value. Time on the phone is generally undesirable because it costs labor, rather than desirable. The challenge that operators have in replacing the lost minutes is to find new revenue streams. The revenue streams are limited either to the consumers or the enterprises on their own, face limitations. On the consumer side, media as a value chain is very fragmented and undergoing its own world of turmoil. On the enterprise side, cloud computing and unified communications are more tightly associated with IT enterprise players than with telcos.
I believe the real opportunity lies in the space between these two. Enterprises have always communicated with their customers through a variety of different channels. Once upon a time, your customers had to come to your physical premises. Communications over a distance was so expensive using horse and hand that only states and the most enormous enterprises could afford it. The postal system, brought on top of the railroads, democratized communication. The telegraph and telephone brought communication at the speed of light to everybody. Those media in turn spawned others, like couriers or SMS.
However, there is still a very limited range to choose from, and we're still adding to that range with products like IPTV. However, the Internet has fundamentally changed things. The Internet is a kind of meta medium that can spawn new media every day. That creates both a problem and an opportunity. The problem is an increasing complexity in how to deal with customers. The opportunity is a greater range of means of interacting with those customers. Therefore, the challenge to anyone who is trying to sell a communications service faces is to build a rich interface to those customers.
Commercial conversations will migrate to the media or channels that offer the best combination of reach efficiency and effectiveness. The consumers will be attracted to channels that offer low price, and they'll pay in terms of their privacy and their attention. The enterprises will be attracted to channels that give them a breadth of customers, the number of people it can reach, as well as the depth in terms of the types of interactions they can have.
To reinvent the telecoms business, there are three things that have to happen. The first one is that we have Telcos have to use their existing communication channels more effectively. How might they do this? The first is the prerequisite; they have to keep the customers on their existing channels, which is by making sure it's a fixed price bundle and not overcharging, and reducing termination fees. If you think back to the voicemail example I was talking about earlier, there are tools out there already that help to try and fix this. You might hear, later in the conference, about Phweet, as an example, which would let you send a text message to the user with a subject, why do they want to talk to me, and a hyperlink embedded. If I click on the hyperlink, it will set up a phone call and I will be put through to the relevant person.
However, there is a revenue option that's being missed here for telcos. This involves one bulk SMS and two originated phone calls being bridged together. These three things could be packaged together as a bundle, and sold together to solve the customer contact interaction problem, and promoted in price differently. Currently they're not.
The second thing that has to happen is operators of communication services have to start to enhance the existing channels to support more efficient and effective communication with customers. How? Let's think about that voicemail example I gave you earlier. Here are five ways in which voicemail could be reinvented to make communication with enterprises and their customers more effective.
Firstly, simple APIs: insert, update, delete. A common scenario is something like this. The tax man calls me to leave me a voicemail saying, "Please pay your taxes." I didn't listen to that voicemail immediately. I know I have to pay my taxes. I've just submitted my tax return. I go back to the website, and pay my taxes. I then pick up the voicemail, and it tells me, "Dear Mr. Geddes, you haven't paid your taxes." I call their call center and make an unnecessary call to their call center, and it's wasted another 10 Euros cost to them. If they could have simply expired the voice message when I went to the website and paid my taxes, then that was a chargeable moment that would have improved that business process; nothing to do with minutes.
The second example is if I can't understand what they're saying, the business process doesn't go forward. If the customer experience is poor, it doesn't go forward. Why can't they record the voice message for me in high-definition audio, locally, move it around as a file as just a bag of bytes, and say if I've got visual voicemail, I can play it back in high definition? There are no dropouts in the cellular system in the middle. That's a chargeable event.
Thirdly, personalize the interaction. For example, if I am on a business trip to China and it's 3:00 in the morning. If you call me to remind me to pay a bill, I will not be happy. If you try to call me to make a sale, I will be even more unhappy. However, if I'm in the U.K. and it's good timing; great. If I'm a prepaid user, sending me a text message with a hyperlink embedded may make me unhappy because there are high data charges. If I'm an iPhone user on unlimited data, it's fine.
Fourth, make the container smart. That can be done in various ways, for example, it could be the container lets you put a voice XML document rather than just a bag of audio bytes. I can have an IVR right there inside the voice message, and I can complete voice processes inside the voice message; no calling back to a call center. Or, it could simply be press hash to have the voicemail system set up a call, or call you back when their call center reopens.
Lastly, make communications multi-modal. For example, BT with Ribbit offers voice-to-text function. Start bundling that and selling that with the termination fee to the call center.
That was voicemail. What about social media? Well what does Twitter for business look like? Two things have to be done. Firstly, an enterprise customer experience, that means service level agreements and enterprise support. Companies like BT, thinking of BT as a generic enterprise, would be willing to pay for that because it is an efficient channel.
Secondly, create the features enterprise as required, so yes, multimedia messaging enriches the level of communication we can have with the customers. Federated identity, if you recycle a Twitter account and it's assigned to someone different, we need to know. All our employees using a single Twitter ID, how can we federate our employee IDs with the Twitter IDs? Security, authorization features, we need to know that certain types of data that we send to customers maybe it doesn't get re-tweeted. And, make it real time. It's all about "now." Taking the lag out of the business process is where the value is.
The third thing to do is to create whole new channels for interacting with customers. The example I'd like to give is everybody in this room has a cell phone either in their pocket or in their bag. It has a call log: missed calls, dialed calls, received calls. I believe, maybe five years from now, there will be a huge battle over placing on the idle screen people who want to talk to you and why, and who gets on there, and in which order they're presented, and how it's presented will be a huge business. If telcos don't do it, somebody else will.
For example, Google in Google Mail has a new feature of sponsored messages where a little icon appears next to the mail and you can roll your mouse over, and you can interact with that enterprise without opening the email, let alone going to their website. It's talking away the friction.
BT is also in this game. We're trying to enhance the range of communication channels to customers, so we're the preferred voice engine for Google Wave and that's creating a richer set of end points and a richer set of interactions that enterprises can have with their customers. What's interesting is it also opens up potentially, in the future, upsell for future transaction which in this case is an advert.
That's really the hope to how we need to think about fundamentally reimagining the offering. Businesses everywhere engage in six common business processes that fundamentally add no value underlying goods or service, and these business processes often find a bottleneck in the interface to the customer. By intelligently reimagining their products to solve those interaction problems, there is a huge opportunity.
For example, every day in call centers around the world, call center operators are paid to transcribe names, addresses, credit card numbers of people for whom the telco they're placing the call from already knows. Trucks deliver parcels to homes where the telco knows you're already out. Utilities send out bill payment reminders by post to people for whom the telco already knows the email address, the Twitter ID, the mobile phone number associated with that home.
To solve those problems, there has to be a platform that has three functions: the ability to connect the enterprise to its customer to make the bits flow, to interact with that customer in some way, and then to be able to transact the business process. I'll give you some examples.
Here is what the revenue model might look like for these moments. Let's imagine we're delivering a high-definition audio voice message into a voicemail system. The conventional wisdom for conventional HD audio tries to charge the customer for this improved feature. The unconventional wisdom is charge the enterprise for leaving a high-definition audio voicemail.
Interact - what if that voicemail avoids a call to the call center because it has a voice XML document and IVR embedded; don't charge for the minutes. Charge for the business process outcome and avoid a call to the call center. Think of my taxes; if I'm going to pay several thousand Euros in some transaction, potentially I could have completed that actually inside the voicemail, and that PayPal for voice product, if you compare the transaction fees to say maybe a Visa or MasterCard, it could have been a tenuary opportunity. There is a huge amount of revenue being left on the table here.
I believe that solving these problems is going to spawn a global race to become the platform that enables this. The platform is required because there is enormous complexity in the middle of this ecosystem. There are too many combinations of enterprises, communication channels, and telcos for any one player in this market to be able to act on its own, no matter how big. These platforms will aggregate together the enabling capabilities of telcos, so for example, APIs to insert into voicemail system. They'll aggregate together enabling capabilities in Web 2.0 properties. They'll aggregate together data about customer profile an preferences. They'll offer these rich interaction services as a communications-as-a-service offering as part of a global cloud computing fabric.
Featured communications is global. The Internet is the global on ramp. The Web is the global user interface. However, the applications for that user interface, today, exists in little stovepipes and they're unable to interact to communicate with each other, and that's where the inefficiency in these business processes come from. The trillion dollar question is who will profit from operating that platform; will it be telcos?
Telcos actually have, naturally, quite a large head start. We have the users. We have the people using our products today. We control those channels. We can innovate around those channels. We have real-time customer data about those people - your location, your presence, your calling history. We're able to bill for millions of events that would naturally be produced by this platform.
However, there is also a danger that online players and new entrants come and re-intermediate telecom's value chain. For example, could a Salesforce.com start aggregating together CRM data from multiple CRM enterprises and start to paint that picture of this is how this customer communicates. "You, Mr. Enterprise, know a lot about your customer in terms of their grocery purchases or the furniture or whatever it is that you do, but we know a lot about that customer in terms of how they communicate."
Or will it be someone new? Just as how Skype, Google, and YouTube, and all these good things burst on the scene and were not ever forecast to be the way they are; will we see a whole new raft of entrants come in and seize this opportunity? Regardless, I think we'll see an unfolding of a new stage in the evolution of the business model of the communications industry. Over the last hundred fifty years, we've seen five stages to this journey.
The first one was born by postal system and telegraph and telegram, which was bringing to everybody the ability to communicate at a distance with messages, and SMS is the current manifestation of that.
The second was an increased democratization of that technology. The telegraph was the specialist activity. The telephone everyone could use, and mobile telephony brought communications everywhere, but only for one application.
The third stage was data. Data enabled any kind of application to be run over generic data networks. The current focus of many operators is on media, which is how to package and deliver that content; not just to move the bits and bytes, but also to be able to present it as an edge device.
I believe we're seeing the birth of the fifth stage of evolution of communications industry, which is moments. These moments are when enterprises connect, interact, and transact with their users to create business process efficiency. That, I believe, is the foundation of the future. I am very interested in hearing from any of you who would like to join me on that journey. Thank you very much. Moderator: That tied in very nicely with my dreams of efficiency. Can we have a bit of Q&A with Martin, here? Please, over to this gentleman at the back.
Audience: : I wonder if you could speak to the privacy concerns. What I saw you write earlier is that you have a very nice BT-centric view that BT will spy on me as I leave my home, track where I go; my bill collectors who thank God are not after me right now, will have the opportunity to remorselessly pursue me down the street. I personally have well over 200 email addresses for the purpose of preventing privacy violations, but what I heard over here was a massive privacy violation. BT will sell my data to the bill collectors so they can pursue me.
Martin: Quite the opposite. Imagine there is this evil company called Google that continuously tracks everything you're interested in on the Web. I have Google Latitude on my phone that watches me everywhere. I, as a user, love it. I opt in because I get something in return. It's completely transparent as to what they're doing and I get value out of it. It's an exchange of value, so I do not want to ever receive again a little on my door saying, "We are sorry you were out. We sent the truck to your door to send you this little note." I don't want it.
It's definitely not a class of how do we flog our customer data, because that would be a disaster. The question is how do you offer both sides of this equation value; the customer increasingly gets cheaper or free services and in return they allow their data to be offered up and to be used in very specific and limited ways. Yes, I too used to recycle email addresses and there are a few enterprises I could name who have had definitely privacy spillages, but I think operators are trusted - trusted is a dangerous word to use. There is confidence in operators and they also have huge expertise in managing very private data and managing the regulatory and legal concerns around that.
Audience: : Hi Martin, thanks for the great presentation. Coming back to the comment that was made and building on what you said, do you see the carriers going through a revenue transition from subscriber-funded services, which is the bulk of their revenue base today, to the types of revenue models you are describing here? Do you see those models coexisting, or is it really an either/or proposition?
Martin: I believe the transition will be messy. It will happen at different speeds in different regions. Different types of players will emerge with different kinds of platforms. There will not be just one global platform but will be different sets of platforms. There will be lots of coexistence and it's too early to tell. I wish I had a crystal ball as clear as that.
Chair: Martin, would you describe it as a bloodbath, or is that going too far?
Martin: No, because often these changes are more dramatic and take longer than expected.
Audience: : Martin, are operators trusted or tolerated, and do you think customers would like to break the link between identity and numbering so you do not know who I am because you're not paying me to know?
Martin: Are they trusted or tolerated? I think it's a mixture of both. The operators have this partial and incomplete knowledge about households and users - the person that has the bill and the person that uses the phone; however, they have more of this information than anyone else and if they're clever enough to work out "how do I partner with the right players to make these business processes more efficient and effective", then I think users will be - the trust and tolerance thing kind of goes away a bit. "You want me to do what in turn for what; okay, that's a clear deal. I'll do it."
Imagine that voicemail example - there is potential to ask the customer, in real time, "Would you like your operator to give us this piece of information in return for this piece of value to you? Press 1 if you agree," or enter your PIN. That's the opportunity. It's not a generic - solve this problem for every business process in the world. It's like let's just deal with little problems at a time; how do I return a call to a customer when they are actually likely to be able to answer it? How do I deal with the text message? It's pre-paid versus post-paid. Are you willing to tell us what kind of contract you're on? That's the kind of very small privacy release that improves the customer experience.
Chair: I'm not sure how to pronounce your name. Is it Jap or Jahn?
Audience: : Yap is okay. Martin, you speak about quality moments. Isn't the key issue the perception of the users instead of the efficiency and effectiveness? Do you really look into what users see when they look at you?
Martin: Last night, I was editing my slides on the train here. I was wondering whether that last slide to say "Moments to Efficiency," or "Moments for Experience" because efficiency that is very obviously a benefit to enterprise and experience is the thing that benefits the customer. In reflection, having heard your question, the next time I present this it's going to be "experience."
Chair: Okay, one final question from the gentleman over here.
Audience: : I wanted to ask about regulation because we've had quite a nice few years where lots of these services like Amazon and so on, have invented themselves and have given us the luxury of being able to interact very easily and buy things very easily, but now it seems that the state and regulation has caught up with that and is kind of a force that's trying to break that again. Recently, I've had several examples of companies telling me the Data Protection Act was a reason they couldn't do things for me that I wanted to do, for example, be able to suspend my daughter's phone account because her phone had been stolen. [chair interruption] The question is what is the regulation factor?
Isn't regulation going to take over and stop this innovation from happening?
Martin: No, because Google exists. Clearly, our existence proofs of business models based on the users voluntarily sharing their personal data and the data protection is a set of very good principles around which any good enterprise rebuilding its business, so no, I don't see regulations being a major hurdle.
Chair: Thank you very much Martin.
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Welcome to eComm Europe 2009,]]>
I'm honoured that you joined us for the first European Emerging Communications Conference and Awards.
The first event held in Mountain View, California, gathered the communications innovation community, along with leading visionaries. This was also the first conference to cover both the iPhone and Android. Back then in the programme guide I stated:
"We believe a new era requires a new kind of conference. Previous industry talking to the industry type events have yielded nothing save consensual hallucinations. The gap between what telecom operators are doing (or allowing) and what the innovation community COULD do, and where end users are taking us is widening fast. Communications innovation is being democratized. The winners will be those who embrace it."
The second event held in Burlingame, California, added to the mix those who are battling to move policy and regulation beyond the framework of the "industrial information age". The programme guide back then stated:
"For telecom operators and media outlets there is not a migratory way from where we are to the future. There is a clear consumer shift underway that runs in the opposite direction to that of telecom and media incumbents; emergent social practice is increasingly clashing with the very structure and desires of incumbent players."
This third event held in Amsterdam, Netherlands, is adding into the mix those who are questioning the fundamental financial structure of the global telecoms mammoth. Economics are changing, power is shifting.
Operators who have failed to innovate are already on the path to implosion; telephony and SMS revenues are already declining in developed markets.
Some will seize the short window of opportunity to re-invent themselves as new intermediaries in a global platform race.
The future of communications is a Global Cloud Computing Fabric.
Once again we'd like to think that what happens this week will have reverberations globally.
The significance of which should not be understated as the future of communications will have profound effects on ourselves, our relationships, and society.
Glad you've joined the vanguard at this critical point in time.
Lee S Dryburgh
(Founder, eComm)
Oct 28-30, 2009
Transformatorhuis, Amsterdam
Now that Martin has been in his BT role since the very end of last year, I wanted to catch up and see if he has changed his opinion or whether he has in fact further developed it. It turned out to be the latter.
2009-09-21-martin-geddes-96.mp3The run time is 59 minutes.
I do have to say if we sound odd and if the interview is not quite as focused as say others we've done together (please see here, and here and if your in love with Martin this transcript also), it's because we were both sick at the time!
The full transcript is also below.
Lee: Okay Martin, you are turning into the "business model" man. Let's begin with a preliminary - if you don't mind me labeling you that, you're Head of Strategy at BT Design. I would like you, first of all for the sake of the readers, as well as listeners, to tell us what a business model is.
Martin: For instance, I'll tell you what a business model is. Let's take an example from outside of telecom. You can compare Southwest Airlines, Ryan Air with other airlines, like British Airways or American Airlines. What is fundamentally different about these companies are not the procedures the pilots follow, or the natures of the airplane, or the kind of thing they offer which is basically travel. It's the business models they use to approach their markets. In telecom, we also see new upstarts with new business models. What we've seen over the last couple of years, and a study by IBM reinforces this, is if you're going to invest money in improving your business, the highest returns are not in investing in new processes or new products but are actually in inventing new business models around the existing propositions.
Lee: Could you elaborate on what business model innovation is? I mean, you've alluded to it. Are you able to expand on what we mean by business model innovation?
Martin: What actually is a business model? I think a very good framework to work with is the business model canvass that a guy named Alex Osterwalder has popularized. It's a very simple diagram. You can draw out the parts of any company's business model. At the heart of it is a value proposition, something they're doing for the user that they're willing to change behavior or part with money to engage with. Then, to either side of that value proposition, you've got a revenue model and you've got a cost model. They come together to give you their profit and loss. On the revenue side, you've got a bunch of segments attaching. You've got distribution channels to reach those segments, and you've got different types of relationships for those customers. In telco, it could be prepay versus post-pay. If you're a supermarket, you might have customers with loyalty cards versus customers who are anonymous to you. On the cost side, you have a bunch of things; you have, assets, not just things you do. Contrast those in the telecom world and network is a thing you have and billing is a thing you do. You have a bunch of partners who help you perform those activities.
In creating a business model, you've got a revenue model which is how you price things. You can disrupt the price products, and a cost model which is how you allocate the costs for the things that you have and do. The traditional way of looking at business is thinking about "How can I build a better product, build a better value proposition to the user?" You try to pour all your money into that. If you look at the airline example again of EasyJet or Ryan Air, or Southwest Airlines, their proposition is just being cheap. They've elevated those other boxes around the user. For example, cutting out all the travel agents in the distribution channels to reach their segments is an example of a business model innovation and going direct to the user, using the web. I think in our world, particularly telephony and voice telecoms, we're going to see the very old, successful, and highly established voice minutes business model being continuously challenged by new ways of working. What we've seen over the last 10 years with new technology and VoIP largely being used to optimize the existing business model, we'll actually start to see much more fundamental and disruptive change.
Lee: You bring us to the exciting part and then you stopped. I'm not too sure if I should ask; would you conclude firstly the current business model for telephony is minutes, or is there more to that business model than just minutes?
Martin: If we take that framework I mentioned earlier, and start thinking about all the different component parts of that framework, the model we have for today's telecom business model is a very simple segmentation enterprise consumer, prepaid/post-paid. The product doesn't vary much, or be adapted much to different segments or needs. It's very much a one-size-fits-all type of product. You might contrast that with Unified Comms products that are attacking the enterprise market, that comes in many flavors. The nature of the relationship with the customer is very shallow. We send you a bill but we know very little about you and how you communicate, how you prefer to communicate. The supply side, as well, is very long established, the network equipment providers basically defining the product and its capabilities through organizations like the GSM Association, 3GPP, designed by committee of what the product does. The evolution of that product, like rich communication suites, the GSM Association is still following the same meta pattern of how we satisfy the user needs.
The current business model is more than just minutes. It's that whole ecosystem for how all those parts hang together. It's important not to diss that ecosystem too strongly as a fan of change because it's been extraordinarily successful to have lasted, essentially in its core structure unchanged, from the very beginning of telephony, even dating back into the telegraph, all through to today. There must be something very strong at the core of it. However, until the last couple of years, telephony has never been an easily programmable feature that could be included and incorporated into software products. There is a fundamental shift in the enabling technology that's going on that will have a ripple effect into business models that we see.
Lee: A number of issues have come up now. When you speak about the 3GPP and GSMA and we have a committee to decide on user needs, do you feel that is likely to continue, or at least continue to the extent that has existed; user needs being decided by - I want to call it political committee?
Martin: I think you have to separate out two or three things that those organizations do or achieve in its activities. I think one is providing consistency of meaning to these communications tools or products. We know what a free phone number does. We know that it tends to begin with "800" somewhere. If I send you a text message, I have a very clear idea as to what's going to happen at your end, what the experience is like. Providing a common social semantics to the services; there's some value in that. It won't disappear quickly, but you're finding that increasingly, people can easily find other services like Facebook and they can easily understand what giving someone a poke, or sending a message onto the Facebook wall means. That purpose is a challenge.
The other part is providing interconnectedness. The telco products that make lots of money today, voice and SMS, are interconnected ones. That interconnectedness is something that continues to be a challenge in the Internet sphere. Basic interconnectedness of say instant messaging networks has been a long-standing problem. From the user's perspective, they want to have something that just works and they don't want to have to worry about "Is the problem I'm having sending this message one that comes from my network provider, or the application provider, or the device provider, or some other plug-in provider, or AppStore member." They just want the stuff that works. Another way of looking at it is the users are lazy and we're all users. Providing the bits of glue, whether they're in the NSS stack or the BSS stack that helps all this stuff hang together, remains a valued and valid thing for these organizations to do. They're not dinosaurs who have passed era; I think their purpose will mutate and they'll be less and less involved in the user experience, the presentation layer stuff; however, there still will be a role for these organizations in defining the glue that holds together all the stuff that the application layers do on top.
Lee: That's an interesting perspective. Again, we'll need to wait two, three, five years to see.
Martin: Look what's happening with Apple, where they have a very vertically integrated end-to-end control business model, which gives a highly consistent user experience for their users. It's proving to be very successful. The problem of course is there is only one Apple, and if you don't like the iPhone, then if you really want to have a phone with a keyboard, you can't participate in the Apple ecosystem. How does that interconnectedness and the ability to have many more possibilities of drawing together AppStore, phones, different services, links into the existing voicemail, telephony, whatever, if it's not to have lots of combinations of those things that work together and have a lot more innovation? Then that's what these organizations are good at doing, helping define those interfaces.
Lee: That's an optimistic view that you've cast out. I just want to make sure I definitely got out of you, but did you fully elaborate the best you could on what's driving the change in the business model for telephony?
Martin: I think there are a number of things that drive it. One is technology. Previously, telephony required understanding relatively obscure telecom protocols like SS7, which were, as you know Lee, you had to go on an expensive training course to learn. It's not something you just go down and get the nearest O'Reilly book on how to build a telecoms network. Increasingly, telephony and telecom's capabilities get wrappered up in very standard IT protocols and become easily consumable web services, for example.
The other big changes I see, one of which is that the users have clearly moved on. The user behavior is increasingly embedded into social applications and that threatens the contact book and the dialer of every handset as a means of controlling the user and the business model. As telephony gets embedded into other applications, then those applications have increasing control over which bearer will the call go over and which business model will support that call.
I also think that's kind of the consumer behavior moving on to social applications. The other part is the enterprise user; we're still sort of living in the tyranny of email and the silo'd, separate communications apps. I think Unified Comms, in some ways, is still exacerbating the problem, rather than relieving it. I still don't have a communication system that helps to manage my productivity and my time. Who should I be talking to and of all the people who would like to talk to me, where is the Unified Comms that lets people register they would like to talk to me, say something they would like to talk to me about, and let me schedule that or automatically schedule that in my calendar for me, and help to organize my life? Where can I tag those conversations, archive them, integrate them with my to-do list and projects, my email? It isn't there. The idea of the PBX and the separate thing called telephony that's different from Unified Comm and social networking is they're all going to be managed together in something new.
That will also drive business model change, so I think maybe the last aspect driving business model change is the sheer inefficiency of interaction between consumer users and enterprises is that so many calls I have to contact centers keep asking me over, and over again "Please dictate your name, your address, your mobile phone number, your email address." There is basic information that is so easily automated away with new tools and protocols. It's hard to carry that data over SS7. You'd have to adapt the existing systems. It's increasingly easy to do it over other protocols and tools. I think that those things taken together will drive the new business models and it will take a while for them to embed themselves. Business model change doesn't generally happen fast, but those who manage to dominate the high ground of new business models early on tend to be very hard to displace, so it's like once Windows got established om the PC, it's dominate for twenty or thirty years.
Lee: There are a number of points I would love to jump in on, but I would like to jump back a little for now. You had said and correct me if I'm wrong, that VoIP, Voice over IP only enhances the old business model. Did I pick you up correctly when you said that, because it's very much how it sounded to me; that VoIP is not a revolution. It was as you put it; only enhancing that old minute model in some fashion, optimizing it is a way you seemed to put it across.
Martin: Yes, now Voice over IP is being used as a way of converging networks, reducing costs, and employing slightly more commodity IT networks. Because of the pricing elasticity, as we drop in price of telephone calls, the number of calls has gone up and the minutes have gone up. It's helped to drive increased value in these network.s However, if you look at the applications that are out there, they're still either trying to collect termination fees or origination fees and even Skype's business model is based on interconnect with the PSTN, which is its business model.
What it doesn't address and the crisis that the users increasingly have is how can I better use my time for the communication that I actually want to do, particularly in the context of interaction with companies or interaction with work colleagues? If you're in a consumer-to- consumer space, then let's just chat and gossip away. There isn't necessarily a revolution in the business model around that, but I think the more consumer-to-business space there definitely is one, and yes, having cheap minutes or free minutes is a good start, but the cost of the call center agent per minute is the problem now, not the cost of the telephone call. How do we use those call center agents to do things that are valuable and that only humans can do, which isn't dictating names and addresses?
Lee: And do you feel or should I use the word think, that - I won't give my opinion here - that there is a demand for what's being called high definition voice? Do you feel high definition voice is going to inject new cash into the system in any way? Is it a revolution? Is it bringing new money into the system, or likely to bring in fresh money?
Martin: I think the answer is yes, not a huge amount, but I think there's only two things that users are clearly willing to pay for as a value added service. One of which is the improved sense of the other person being there with you, which HD voice brings. People have always been prepared to pay for that enhanced richness in media. There is a great paper by an economist at the FCC, called Douglas Galbi called "Presence in Communication". It's a story of the history of communication from the parchment onwards. There is a clear theme; the sense of the other person being there with you over time and space is something that's fundamental in the human need and desire. HD voice does that for you.
You experience the first ever Skype call where the audio's really good; it's like a goodness, it's like a real positive surprise that telephony is capable of that. The other thing I think people are willing to pay for is crossing over different media, so it's voicemail to email, or I have Ribbit for mobile on my work mobile, so I get my voicemails as little text SMS summaries. That integration of different media and bridging their different strengths is something that people are willing to pay for.
In the mass market, there are lots of other niche features that people find extremely compelling; if you're a real estate agent or a dentist or something that's vertical, so that you need a program for telephony API and platform. In terms of mass market, I think the only two big mass market things out there that will make money are HD voice and what I call cross medium integration.
Lee: That mass market - this might sound like an outlandish question, do you feel that the mass market is likely to continue being a mass market in the long, long term, or will it all become niches?
Martin: The value of interconnectedness will always be high. Having some kind of lowest common denominator of how we communicate is likely to persist for a very long time, and the patterns of interaction that the existing mobile and landline network have is likely to persist for a very long time. We've seen little changes that people almost hardly notice, so like on fixed line there's a dial tone and mobile there's not, and that results in very subtly different, slightly different behavior. There is no busy tone on a mobile phone.
Lee: What I wanted to get at is the mass market was always what you end up before, in telecoms, in order to make money.
Martin: It will fragment, it would be this slightly paradoxical way of each of these little fragments needs its own communication needs satisfied, and they still need to communicate with all the other people. I think there will be some - maybe ten years out from now, I can imagine there being half a dozen global communications platforms that aggregate together existing - interconnect with existing landline, mobile, and Skype and Facebook and a whole bunch of other SIP termination points and your talking picture frame and your TV, and, and.... So, there'll be these new platforms that are the mass networks, but they aren't necessarily branded and sold directly to the customer and they don't necessarily correspond either to today's telcos, which have the physical structure underneath.
Yes, the user experience will fragment. Yes, we'll be communicating from a huge range of devices and applications. Yes, there will be some extremely successful new ones that, maybe in the context, are "mass market," so just like iPods today are dominant in the mp3 player segment, there will be things that are dominant in their segment and will be regarded as mass market and will have voice capability embedded in them. But, there will be no one, dominant communications media platform. I think the thing in the middle is these aggregators and how they help make it easy to integrate all kinds of end points and product protocols into any application device; that's where the business is.
Lee: I didn't want to jump there just yet, but I like the way that the case you're slowly building up here, I think you're going to end up saying that Ribbit's in the perfect position to sit there in the middle of where there's this value exchange.
Martin: Clearly, I wouldn't have joined BT if I didn't think Ribbit was a good idea. Yes, I think the greatest value will come from being able to offer what one might call the best network, but that network isn't the cell towers and the fiber; it's the ability to connect to, interact with, and transact with the greatest possible number of endpoints, at low cost, and great ease of integration. It's a different way of competing compared to the past, where the network was a physical asset. Increasingly, the network is a virtual asset and sort of relationships you have. Think back to our original discussion about business models, it's about all those suppliers and partners and how you will be able to integrate with those that's now the differentiator, not owning some piece of physical infrastructure asset.
Lee: I'm glad I wasn't wrong and it wasn't my imagination; If you don't mind me just jumping back a little again, we spoke about the mass market and we spoke about possible things you can do to cause incremental value changes, possibly, like HD communications or media conversion like voice to text, like Ribbit does. But surely, the greatest value going forward is in the long tail of communications, i.e. away from the mass market. You'd mentioned estate agents [realtors], so surely the money is in the long tail. It's in servicing niches. It's in building applications, communication applications, which are tailored to specifics, be it teenagers in love or people who sell cars or doctors. Don't you agree that the money, long term, is in the long tail?
Martin: Yes and each of those applications will generate a whole bunch of systems integration revenues and revenues [0:29:14?] vertical, and still people using those applications need to communicate with everyone else. Real estate agents need to communicate with people buying houses, and people buying houses aren't going to go out and buy a special application to help them communicate during their house buying period or program. The opportunity that's out there is for the person who offers to "the network," to offer the features and capabilities that integrate with the realtor application, that makes that application save time for realtors, which can be simple stuff like if a realtor wants to leave a message for one of his customers, he doesn't really want to have a long social chat with that customer, or that customer might be roaming abroad and he doesn't want to call that customer while it's 3:00 in the morning. Why can't they just record a voice message, in fact, why can't they even just deposit a pre-recorded voice message that maybe synthetically injects the right text, spoken or voice, into the message to the user can pick it up on a voice medium and respond, assuming voice is the way to communicate for that? I think that it's the middlemen in the platform that going to enable all these applications we build that will be the powerful players in this, the Windows of voice.
Just like Windows made it much less relevant as to which PC you need to have bought, they've abstracted away all different kinds of hardware; these communications platforms will abstract away all different underlying networks, protocols, and differences in the end points, and that you intelligently interact with them appropriately. Whether I'm sending you and SMS or a Facebook poke, or an instant message, or whatever, it will help you manage those communications and the relevant business processes.
Lee: Okay, so do you see the mass market being as relevant going forward, or less relevant, and do you see more of a rise of fulfilling niches? What I'm trying to push at is the old telephony was very vanilla. It served everybody the same. It didn't depend what you were trying to do with it, and as you said at the beginning, it made the money from minutes. Would you like to say anything on the widgetization of telephony?
Martin: I think there will be new mass markets, but they'll be within the categories into which voice and telephony and other communications are embedded. Whether it's gaming consoles, or medical imaging machines, or whatever it might be, healthcare monitoring, [0:32:32?] they'll be successful and there'll be dominant players within those categories, which will be "mass markets." The number of underlying platforms that power these, I think, will be relatively small.
Today, there are huge numbers of suppliers that can sell you interconnect with minute-based voice. But once you start to go beyond that and start thinking of a multi-application, multi-modal communications world, where you want to interact with customers via SMS, email, instant messaging, Facebook, ten different social networking applications, and the emerging end points like IPTV, set top boxes, and embedded applications in cars, for example; once you start to get that huge range of end points, then that will drive just a few major players to control the platforms. In a sense, it's the invisible engine in the middle, the software platform -
Lee: But it's interesting that you're saying the software platform because when you talk about these services, traditionally that would have been telecom equipment and vendors, your Siemens, your Logica, Alcatel and so on. They would design, approximately by committee, standards in order to sit in the middle to build multimedia conferencing units etc. The way you're talking, this all has become software platforms?
Martin: Yes, they'll still operate across the stack, Cisco, WebEX and Cisco telepresence at the top of the stack, and they're still doing stuff down at the bottom end of the protocol range as well. There's nothing stopping all the players from participating at all levels, but I think the greatest rewards will be the specialization of the one thing really well.
The patterns of how these companies and the industry associations work will shift. It won't be - without trying to open up the range of possibilities for innovators rather than necessarily closing them down, rather than defining this is what an IP video telephony system should do and here's what a busy signal should mean and this is what happens when you try and call someone. Make this IP video thing look like telephony but with a video, then instead it's about how do you just enable the basic building blocks that say, "Hey, maybe I just want to be able to see what's going on in my hallway twenty-four hours a day when I'm away on holiday, see my dog who's in the kennels" for a pet owner who goes away on holiday for two weeks, and how that application works might be very different to ring a dog. [laughs] A dog can't press the answer button, so the applications need to work in a very different way and be transported in a different way and priced in a different way.
Probably use connectivity rather than video being seen as this super important, real time thing that has to be the highest quality possible in the network, actually dog monitoring might be the opposite. Discovering, scavaging capacity that was left on this network at the lowest possible price, probably free, and if I lose contact with my dog for two minutes, it really doesn't matter. Allowing these new ranges of possibilities, technically and economically, that's a challenge.
Lee: It's interesting; it sounds like Ribbit could enable the future of pet watching.
Martin: Frog watching, of course being an amphibious company. [laughter]
Lee: I just want to have you stress and earlier point if possible. The unified communications, some people will interpret what you said in some fashion as meaning "unified" and so to resolve any ambiguity, can you stress in your own words how the direction of unified communications is different to that which you've been speaking?
Martin: I see Unified comms as trying to bring together previously disparate communication medium experiences into one "seamless" experience. It hasn't taken off as fast as it originally expected. You have to ask yourself why? It could be that there's value in keeping these different things separate, just like you have a personal mobile phone and a business mobile phone at weekends, and only one of those is with me. I don't have to worry about setting up a web page to say, "I'm working today. I'm not working today." I just pick up the right phone. It's really easy.
It's really about creating combinatorial experiences that are appropriate to that moment, that context, that application rather than being an application called "Unified Comms.", I'm now in my word processor, and I'm now in my unified comms application, and I'm now in my browser. These are all separate things. Actually, it's how does that particular web page where I'm trying to visit my mortgage earlier today, why can't I have the widget in that mortgage page that says, "Contact customer care." That widget doesn't know anything about me today, and in the future it could be that widget is one that knows this is my mobile phone. This is my landline phone. I'm at home, you can call my landline, or actually I'm on Skype at the moment, you can call me on Skype. I'm abroad and I'd rather have free Skype calling in my hotel room than $2 a minute calling on my mobile phone. I think the personalization aspect and the ability to integrate communications is maybe more of a compelling story than the ability to "unify" them in to a single user experience.
Lee: Thanks for that clarification. Now, when you spoke earlier about UC, you had said it cannot be separated from productivity and time. If telephony cannot be separated from productivity and time and as you said, a lot of UC clients can unenhanced - what's the word for unenhance? I've got a mental block here - unenhanced; I like that word. Let's keep it there - unenhanced your productivity and time, let's take things a step forward. Ultimately when you're talking about productivity and time, productivity is more of a business term. But we also want productivity in our home lives. The distinction between home life and business life is anyways blurring, as more people work at home etc. What you're ultimately speaking about, when you say productivity, is fulfilling wants, needs, and desires.
So really, what you're saying is that telephony cannot be separated from fulfilling wants, needs, and desires? Would I be correct in going that far; fulfillment of human intentions, so the future of telecoms, therefore, is fulfilling intentions, human intentions, not dog intentions?
Martin: So I'll tell you where my thought process comes from. I use my personal life, and people know, I have a plug-in called GTDInbox, which helps me use the "getting things done" methodology inside Gmail. I can just tag Gmail with the context it relates to in a project and whether it's something that I should do someday, whether I need to do it next action, until it's completed. I can just click on different contacts and different projects to see what I'm supposed to be doing.
It makes it easy to integrate these two worlds. If someone sends me a voicemail message, I can't today tag that. I can't do anything with it. It's not a digital object that I can manipulate in any way, whatsoever. I'm just utterly captured by the telco's voicemail system and it throws itaway after twenty-one days. It's like the exact opposite of Gmail. If I need to get back and actually there was something really useful, a reference number in that voicemail that got sent eight months ago, tough. It's gone. It's an empty productivity tool.
There is no way of me integrating my voicemail messages into my personal work flow. What I do see it being; of course the role of unified comm's is being an interface into my world of personal productivity. It isn't a communications application, unified comms, it's a work space in which I can work and I can integrate the digital objects like text files I'm working on and blog posts, and bits of additional media, and communicate and share them. What I see missing over, and over again is that work flow, that personal work flow element. Yes, there's lots of stuff about sharing media, but almost every time I've tried to use any of these tools, they don't easily adapt to my way of managing my work flow. They try to embed somebody else's idea of doing it. I see mostly unified comm's apps as being too tightly coupled. I've tried to use the sharing stuff inside, like the Microsoft Office Suite, and it's good. It's great if you buy into the complete Microsoft vision, but I've got Google mail and GTD Inbox. Please work with my way of doing things and that, today, doesn't happen.
Lee: I learned something new about you today, Martin. I didn't know you were so deeply into the cult of David Allen and reading 43Folders.com daily. Again, nice to learn something new [laughs].
It does pose a question that there will be an interesting play between the things we use to communicate in operating systems, because today an Apple Mac comes with iCalendar and contacts and often, it's frustrating that your communications don't tie into that very well. If you get an email on the Mac, yes, it can auto populate certain things in iCal by stripping out dates and times, but the integration is less than elementary.
The future is quite interesting in terms of how the OS will develop as well. I know you've got a cold and I can hear you sounding tired. I feel racked with guilt so let's just string this more towards British Telecom and their platform Ribbit. You had earlier said that more and more third parties, i.e. non-telcom operators will disintermediate the operator by "stealing" the dialer, by stealing the contact book, i.e. the way people are using Facebook, i.e. potentially people can use telephony within Facebook. That old solid interface that telcos have, the telephone dialer and also the phone contact book, will be taken out of their control. Once that interface is taken out of the control of an operator, then as you said earlier, people can decide or applications can decide which bearers to use. I assume if we turn this up again, asking you about how BT's reacting, I assume they want to stop the dialer and contact book being taken out of their control?
Martin: Different parts of each telco have different sets of interest essentially. There is a retail answer, and the wholesale answer is yes at the retail side it's very profitable to control the user. It takes a Verizon with their FIOS offering, they lay a fiber to your home. They control the access. They give you a set top box you can plug in the set top box. And as a consequence they can charge you $7 a month to be able to access your home media and your PC on your set top box. The control of the fiber extends all the way back into the home. They can ding you for watching your own stuff in kit that you've bought, which is a great business model if you can manage it.
Who wouldn't want to extend those revenue streams on behalf of the shareholders? At the same time, there's this other world going up of fragmented communications and the consumers are increasingly being tilted toward using third party applications. The history from the IT industry is it's the platform makers who become the dominant players in this ecosystem. BT has clearly bought into a very highly developed and successful platform with Ribbit and it's acquired over 10,000 developers in a very short period of time, and lets you build communications applications without having to worry about the weird nuances of how thirty different people have interpreted the SIP protocol.
Lee: I'd asked about dialers and contact books. Maybe it was better to back up even a little further and say hey, what might the future business model look like before I ask about BT and Ribbit? Can you shed any light on future business models and then go on to talking about BT and Ribbit, and then we'll go on to talking about BT and Ribbit, and then we'll wrap up for the sake of you needing your next Lemsip.
Martin: I think there's a Googilization of voice going on and it's gotten very literal with things like Google Voice where the flip is from trying to charge the end user for relatively simple software applications to instead monetizing the relationship with the user via some third-party. Google do it because they want to advertise to you, so the business process there is marketing.
The business processes that still retain most of the inefficiency are customer care, billing and payments, and identity-based services. That's where the telco is strong, so I think the business model of the future will increasingly see enterprises being charged for accessing what the telco knows about you and what they can do to help interact with you more efficiently and effectively.
Whether it's the telco that actually sells that capability straight to the enterprise, I think there will be middlemen who make sure that enterprise doesn't have to have a relationships with thirty different telcos to cover off their user base. There is yet to be a "Windows" of telephony that acts as that platform, that embeds that rich communication capability, manages those relationships with all the telcos and the customers and deals with all the privacy and regulatory issues that span different jurisdictions that the enterprise doesn't want to have to think about. I think we'll see this Googlization process of going from a single-sided market towards the multi-sided market. The opportunity for the telcos is to build on is the termination fee regime that it is today. Today, they already have a couple of forms of this market structure. One is termination fees. You get to charge the inbound caller, not the end user customer that you already have. Another example is free phone [toll free], it flips the model on its head, you get to charge the other side of the communication. Those are probably the templates for the future, rather than trying to charge the user directly, to having enhanced voicemail or privacy or other features.
Lee: That's very interesting, the two templates that you gave there. I think it would be hard to disagree with that, and it reminds me of the next month's event; one of the Platinum sponsors, VoiceSage. When you said "interact more efficiently than users" I think you know enough about VoiceSage to comment whether or not that's the type of business you also mean.
Martin: Yes, so VoiceSage offer the Software as a Service (SaaS) application to, for example, make it very easy to send out automated reminders to all their customers who haven't paid their bill this month, i.e. please send us some money. The limitation that VoiceSage or any other application provider is presented with is interface the telco's expose today. You can send a bulk SMS, you can send a phone call, but if you want to do anything different beyond that, even if the underlying networks and system supports it, tough; those capabilities aren't exposed. It's simple stuff like I want to contact these users but not if they're roaming. I can't do it. I want to expire this voicemail message because the users just finished paying their bill on the website. I can't do it. What happens as a result is the user calls in the call center and says, "You sent me this voicemail saying pay my bill but I've already paid my bill." Well, the voicemail message was sent to you yesterday. But you've already wasted $10 on the phone telling the customer that, whereas you really want to just expire the voicemail.
Lee: Exactly, so VoiceSage fits into that picture very nicely and if British Telecom go where you're suggesting BT go, then British Telecom is likely to support other businesses like VoiceSage in doing what they do.
Martin: Yeah, that's where I think the future revenues are; the next network is a software-defined network, interconnected with huge numbers of endpoints and makes it easy for businesses to interact with their customers, or other businesses.
Lee: Interesting stuff and I'm ill. My throat's getting sore, and you're ill. I know you're energy is lagging; I can hear it. What we'll do is finish off with the easy question [laughs], which is how is British Telecom responding to the changed landscape, to templates that you spoke of etc., and how does their acquisition of Ribbit some time ago, as a platform for developers, fit into that in response of British Telecom in the long term?
Martin: I can't share BT's trade secrets, but it's obvious that Ribbit aims to democratize access to telecom's protocols in communication to the mass space of IT developers rather than the small base of telecom developers. I joined BT because BT has a unique combination of capabilities as well as the motivation to deploy them. Global services give BT possibly the strongest of relationships with enterprises. A strong wholesale division gives you relationships with other telcos. Existent retail base lets you boot strap new businesses by starting off with your own end customers so the experiments with how to use new enablers like interactive SMS to engage our customers more efficiently and effectively. An integrated IT and network division in BT Innovate and Design to actually be able to execute on building these solutions, rather than being stuck in separate silos and IT and networks and not talking to each other.
Lee: It's going to be very interesting taking your projections, beliefs if I may call them that, or knowledge, and hopefully for some of them, Ribbit and general sentiment at British Telecom and seeing how it goes over the coming years. I'm sure that over time we're going to hopefully see a lot of the leading innovation in terms of business model coming from British Telecom and I'm sure we'll expect your leading thought on those topics. Once again, for the third time running, you're keynoting at the Emerging Communications conference, which takes place the end of next month, for the first time in Europe. I really appreciate you keynoting. Can you just say the topic that you're keynoting on, and we'll finish off there.
Martin: Many of the same things as this conversation today, but in a more succinct form. Going beyond minutes what is the business model, and describing it as moments because the critical moment is when you try and bring two people together. How do you set up that communications channel to bring the right people together, at the right time, in the right way, and solve some business process problems for somebody who's willing to pay for it and put new money into the communications world? I'll be reviewing what the opportunity might look like, who the players might be, what kind of business models we might see, what their goals are and how I see maybe this world unfolding over the next five to ten years, which may be a very different kind of communications landscape than the one we've seen in the last ten or fifteen years.
Lee: Okay Martin, I will let you get back to your Kleenex, your Lemsip, and I'll go drink tea with honey. Once again, I really feel that the time, an hour or so we spent chatting together, was very beneficial to get an insight into where you see the entire industry going. Once again, I want to thank you from the eComm community for coming and supporting such an event and meeting with people.
Martin: Thank you Lee. I look forward to being there next month.
Lee: Thank you.
The official press release just went out in Business Wire (America) and Real Wire (Europe). I'd like to highlight a few parts below:
Announcing its role, Sten Tamviki, Skype's Chief Evangelist & GM for Estonia, said: "As headline sponsor of this month's Emerging Communications conference, Skype is pleased to support the independent and innovative community that eComm represents. Skype disrupted a traditional industry to enable the world's conversations and is proud to be part of a thriving community of innovators."
Lee S. Dryburgh, organizer and co-chair of eComm, added: "Back in 2003, Skype sent shock waves through the telecommunications industry by heralding a new software-only, edge-centric approach. Six years later, Skype is still launching innovations that will vastly increase the value of its platform and further disrupt the industry. I'm totally thrilled that Skype recognizes the value of the communications innovation community by taking the eComm headline sponsorship position...Again, we're so very pleased to see the most disruptive communications technology companies take a leadership role in bringing eComm to Europe for the first time"
An amazing three-days are ahead. Each show is very different and I very much look forward to the unique flavour of this one.
I'd like to take this opportunity to remind people to attend as the event is less than two weeks away and the late pricing will kick in very soon.
Lee S Dryburgh (Founder)
PS Feel free to connect with me on Facebook here. Follow me on Twitter @leedryburgh. You can also email me directly at lee.dryburgh@eComm.ec
PSS We're now looking for sponsors for night events - essentially companies willing to pick up a restaurant tab. If interested please email sponsorships@eComm.ec]]>